Rite Aid turns profit corner, targets store growth

Drug Store News, July 19, 2004 by Michael Johnsen

Customers told us they want a store they can depend on for health-related products, advice and information. They also told us they want a store that's easy to shop and good for quick in-and-out trips if they're in a hurry. They also like a store that's a fun place to browse and look for what's new. They emphasized that two of the most important drivers of satisfaction with their drug store are easy access to the pharmacist and, of course, friendly personal service.

When our two pilot stores, one in the central and one in the eastern division, open in October and November, we'll do more customer research to see what works and what might be improved. Using that customer feedback, we'll go back and retrofit plans for any other new stores in the pipeline. We're also taking elements of our new design and putting them into a remodel on the West Coast. It's important that our new design principles work for remodels, as well as for new stores.

Drug Store News: What are the key elements you look for when you design a new prototype?

Sammons: It has to be customer driven, as well as operationally efficient. That means it's easy and inviting for customers to shop and easy for our associates to accomplish the work they need to do in both the front end and the pharmacy. The store must also provide appropriate facilities for our associates. And, of course, the financials of the store must work, from the original investment to the sales and profitability expectations.

Drug Store News: How will the new prototype better position Rite Aid in its core markets?

Sammons: Of the 35 to 40 new stores for fiscal 2005, half will be net new and half will be relocations. They will be in our strongest existing markets, both in the East and the West, because in existing markets we can leverage our advertising, distribution and field supervision costs and get the quickest return on investment. Our goal is to protect share in key strategic markets, as well as to capitalize on share growth in key markets. Relocations are important because we can replace older, smaller stores with new stores that let us offer customers our full assortments, as well as a better shopping experience.

With net new stores, we can fill in markets that are not as dense as we would like them to be--for example, expanding a strong inner-city position into the suburbs or vice versa. Some markets are a lot more spread out now than they were when our stores were built. We also would look at new-store opportunities in locations contiguous to our strong markets, which also would enable us to leverage expenses.

Drug Store News: At the end of fiscal 2005, how many stores will feature the new prototype?

Sammons: Since fiscal 2005 ends in February 2005, I expect the two pilot stores opening in the third quarter will be the only two new prototype stores open this year, though elements of the new prototype will be used in some of the 175 remodels we are planning. It's too early to say how many of the more than 100 new and relocated stores we plan for fiscal 2006 will be of the new prototype, but I expect most will be and that many of our remodels also will carry elements of the new design.